How does SBA decide if a business is small enough for a loan?
Short answer
SBA uses the size standard for your primary industry in 13 CFR § 121.201, in receipts or employees. Or it uses an alternative test: $20 million tangible net worth and $6.5 million average net income. Affiliates count (SOP 50 10 8.1, Sec. A, Ch. 1, Para. D).
You qualify if you pass either of two tests. SOP 50 10 8.1, Sec. A, Ch. 1, Para. D calls them the Industry Size Standard and the Alternative Size Standard.
Industry Size Standard
13 CFR § 121.201 lists a maximum for each NAICSThe federal code system that sorts businesses by industry. industry, in annual receipts or employees. Examples from the current table:
- Full-service restaurants (722511): $11.5 million in receipts.
- Plumbing, heating and air-conditioning contractors (238220): $19.0 million.
- Offices of dentists (621210): $9.0 million.
- Machine shops (332710): 500 employees.
Two checks apply. Your business alone must fit the standard for its primary industry. Combined with affiliates, it must fit the standard for your primary industry or the group's, whichever is higher (13 CFR § 121.301(a)).
Alternative Size Standard
7(a) and 504 applicants can instead use 13 CFR § 121.301(b)(2). Including affiliates, tangible net worth cannot exceed $20 million. Average net income after federal taxes for the two prior fiscal years cannot exceed $6.5 million.
Who checks it
Signing the application certifies that you are small. SBA or a delegated lender may accept that unless credible evidence to the contrary is apparent (Para. D.3; 13 CFR § 121.303).
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